Moving Wall Street’s trading infrastructure onto blockchain-based systems could accelerate financial crises beyond regulators’ ability to respond, even as the technology promises to cut costs and eliminate settlement delays, the International Monetary Fund says.
Tokenization — the act of representing assets like stocks, bonds and cash as digital tokens on shared ledgers — is a structural overhaul of financial architecture rather than a marginal efficiency gain, the IMF’s Tobias Adrian wrote in a report published on Thursday.
Banks, clearing houses and asset managers including BlackRock Inc. and JPMorgan Chase & Co. are already running live pilots to test a technology that they hope will boost fees by making it easier to trade traditional assets like stocks and bonds.
In September, Nasdaq sought approval from the US Securities and Exchange Commission to allow stocks to be tokenized and traded on regulated venues like itself. Earlier this year, the New York Stock Exchange said it’s building a venue using blockchain technology to allow for trading tokenized stocks and exchange-traded funds around the clock.
SEC Chairman Paul Atkins has supported tokenization.
The technology will allow for trades to move more quickly through the system, but what some see as a feature is also a vulnerability, said Adrian.
“Stress events are likely to unfold faster, leaving less time for discretionary intervention,” he wrote. Settlement delays serve as buffers that give central banks and regulators time to intervene during crises, he noted.
In a system that settles instantly and therefore continuously, there’s little time for regulators to intervene before margin calls hit. A tokenized system also functions around the clock — but central bank emergency lending facilities were built for business-hour crises, he said.
He also compared privately issued stablecoins, increasingly used as settlement assets in tokenized markets, to money-market funds: functional in calm conditions but vulnerable to runs.
The note mapped three scenarios for how tokenized finance develops: a coordinated system anchored by central bank digital currencies, a fragmented patchwork of incompatible national platforms, or a world dominated by private stablecoins where public backstops weaken.
Policies must respond to the structural reallocation of trust and risk that tokenized infrastructures entail, Adrian said, suggesting solutions like anchoring settlement in safe money and clarifying the legal status of tokenized assets.
“Achieving this outcome requires policymakers to engage proactively with the structural implications of digital transformation, rather than respond reactively to its manifestations,” the note said. “The window for shaping the architecture of the tokenized financial system is open, but it will not remain so indefinitely.”
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